Do reductions in tick sizes influence liquidity?

Michael Aitken*, Carole Comerton-Forde

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)


On 4 December 1995, the Australian Stock Exchange reduced the minimum tick size for stocks priced below $A0.50 and stocks priced above $A10. We use this natural experiment to examine the impact of tick size reductions on liquidity. The present paper reports that although lower tick sizes generally lead to increased liquidity, this result is not universal. Stocks with larger relative tick sizes experience the greatest improvement in liquidity, while stocks with small relative tick sizes and low trading volume experience reduced liquidity. There is no change in order exposure as a result of the reduced tick sizes.

Original languageEnglish
Pages (from-to)171-184
Number of pages14
JournalAccounting and Finance
Issue number2
Publication statusPublished - Jul 2005
Externally publishedYes


  • Bid ask spread
  • Liquidity
  • Minimum tick size


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